Debt talks and tax cuts: Save young Americans from slavery

Young Americans like me can't 'win the future' saddled with debt. But there's a formula that works. Reagan cut taxes and the US saw economic growth, lower unemployment, and higher revenues. Let's do that again.

ByRon MeyerJuly 18, 2011

Washington — If Americans think they’ve left all forms of slavery and tyranny in our past, they should consider this: By 2020, the interest payments alone on national debt will equal approximately $5,500 per taxpayer. Americans may never again face kings or slave drivers, but in our not-so-distant future we face fiscal enslavement to our government.

Instead of battling illegal immigration, our government might have to stop future citizens from fleeing the country to escape paying their share of our nation’s massive debt. As annual interest payments on this debt increase, the less our government can do for us (through services) and the more we have to do for the government (through taxes).

This form of servitude is an unacceptable burden to place on the same young people we expect to “win the future.”

The growing consensus among Washington elites (if not among political leaders) is that in order to preempt a debt crisis, we need to cut spending and raise taxes on the “rich.”

Well, they’re half right. Government spending – especially on Medicare and the other entitlements – must be drastically trimmed, but raising taxes on corporations and people in the highest income tax bracket, many of whom are employers and investors, will only exacerbate the debt crisis and further undermine job prospects for young Americans.

More taxes, means fewer jobs for youth

When employers face higher expenses or less revenue, one of the first places they cut are the nonessential and entry-level positions held mainly by young people. That’s why youth unemployment historically rises faster than normal unemployment during a recession – exactly what’s happening now in our current economy.

The Huffington Post reports that this year up to 85 percent of college graduates will be forced to live with their parents because they can’t find sufficient work. For those who are lucky enough to find work, the median salary for 2009 and 2010 grads is $27,000 compared to $30,000 for those who graduated between 2006 and 2008.

The big-spending, big-deficit policies aimed at saving and stimulating the economy obviously aren’t helping young people find jobs, and they certainly aren’t lowering the nation’s debt. If we increase business expenses through taxes, employers are likely to cut even more jobs for young people.

Instead of taking a little from the “rich,” we end up taking a lot from young citizens striving to achieve the American Dream.

Not only are tax hikes for the rich and corporations likely to make employment prospects worse for America’s youth, they're also likely to bring in less revenue for the government in the long run. If tax hikes drive up unemployment, government revenue is likely to go down – not up – as more citizens end up needing to draw on, not pay into, government services.

Europe's record of failure on tax-hike austerity

In response to growing debts, welfare-heavy countries across the European Union (EU) are implementing what conventional economists call “austerity.” This approach, similar to the theory advanced by the Obama administration, is that spending cuts need to be matched with big tax increases on businesses and the wealthy.

This tactic is failing miserably. In countries like Portugal, Greece, and Spain, governments have tried tax-hike austerity, and in all four countries, the unemployment rate has gone up and tax revenues have gone down.

In Greece, the pro-austerity economists in the Greek government and EU authorities fell significantly short of meeting their 2010 deficit projections. The Wall Street Journal reported that this spring that, “[l]ower-than-expected government revenue was the main culprit behind the higher deficit number.”

Europe is learning the hard way that raising taxes on the wealthy during economic crises kills economic growth and incentivizes tax evasion – making the debt crisis even worse. America should learn from Europe’s mistakes and take raising taxes off the table.

In contrast, the last three presidents to raise taxes on the wealthy during economic troubles – George H. W. Bush, Herbert Hoover, and Franklin Roosevelt – saw the country spiral into recessions (or a depression in Hoover’s case) after their tax hikes.

After the Reagan cuts, America experienced its longest sustained period of economic growth ever, and youth unemployment (ages 16 to 24) dropped nearly five points in four years (1982 to 1986). And, even though deficits rose because of defense and domestic entitlement spending, revenues increased.

To cut the deficit, our leaders can use what worked for Reagan. He cut taxes for employers during tough economic times (though he raised payroll taxes during more prosperous times). And our leaders can trim where spending grew under Reagan (domestic entitlements and defense spending). With this formula, America can both spur revenues and cut spending – all while growing the economy.

America’s leaders can choose to follow Hoover and Europe into an economic abyss, or they can find the youthful courage to buck conventional thought and embrace what’s worked for the last 100 years. We need tax cuts to free America’s young people from joblessness and the shackles of our growing debt.